FINANCIAL STATEMENTS 3Consolidated financial statements as of December 31, 2017 As of December 31, 2017 the Group’s scope of consolidation included > during the first half 2017, Steen & Strøm, the 56.1% Scandinavian 282 companies, including 248 fully consolidated companies and controlled subsidiary of Klépierre, completed the sale of two 34 companies consolidated under the equity method. properties. On January 23, 2017, the Lillestrøm shopping center In accordance with IFRS 12, the Group discloses its control assessment was sold in Norway, and the offices of Emporia in Malmö, Sweden, to define the nature of its interest held in its subsidiaries and the were sold on March 31, 2017. As a consequence, the Norwegian associated risks (see note 9.4). company SSI Lillestrøm Torv AS and the Swedish company Phasmatidae Holding AB were disposed and excluded from the Main changes in scope of consolidation of the year 2017 are as follows: scope of consolidation; > on May 22, 2017, Klépierre acquired 100% of the shares of SC > on December 1, 2017 Klépierre became 100% owner of the Nueva Condo Murcia for an amount of €124.1 million. This company company Principe Pio in Spain by acquiring 5% of the shares from owns Nueva Condomina, the leading shopping mall in the region the minority shareholder; of Murcia, Spain. The acquisition was treated as a business > on December 19, 2017, Klépierre acquired a company in the Czech combination according to IFRS 3 revised. The net amount of the Republic, Nový Smíchov First Floor. This entity owns the first floor identifiable assets and liabilities at their fair value at the acquisition of the Tesco Hypermarket in the Nový Smíchov shopping center date stands at €111.8 million. The €12.3 million goodwill is allocated in Prague; to the possibility of optimizing income taxes when disposing the assets. In accordance with IFRS 3, the purchase price allocation > on December 28, 2017, the Bulgarian company Corio Lulin owning is provisional and could be subject to change for a period of a plot in Sofia was sold; 12 months after the acquisition date. Since the acquisition date, > on March 13, 2017, Corio SAS has been merged into Klépierre SA. Nueva Condomina has contributed with €9.8 million to rental Furthermore, four new companies have been created (Klepierre income and €9.0 million to the net rental income of the Group. Finance Italia, KFI Hungary KFT, Klepierre Energy CZ S.R.O. and Kle If the acquisition had taken place at the beginning of the year, Start SAS) and three other empty companies have been merged the contribution of the company would have been €16.1 million to or liquidated (Steen & Strøm Centerdrift AS, La Plaine du Moulin rental income and €14.2 million to the net rental income; à Vent SCI and Pivoines SCI) during the year. Note 5 Notes to the financial statements: Balance Sheet 5.1 Goodwill Accounting policies Accounting for business combination The accounting rules for business combinations comply with IFRS 3 (revised). To decide whether a transaction is a business combination the Group considers whether an integrated set of activities is acquired besides the investment property. The criteria applied may include the number of property assets held by the target company, the extent of the acquired processes and, particularly, the auxiliary services provided by the acquired entity. If the acquired assets are not a business, the transaction is recorded as an asset acquisition. All business combinations are recognized using the acquisition method. The consideration transferred is measured as the fair value of assets given, equity issued and liabilities incurred at the transfer date. Identifiable assets and liabilities of the business acquired are measured at their fair value at the acquisition date. Any liabilities are only recognized if they represent a real obligation at the date of the business combination and if their fair value can be reliably measured. For each business combination, the acquirer must measure all non-controlling interests held in the acquired company, either at their fair value at the acquisition date or at the corresponding share in the fair value of the assets and liabilities of the acquired company. Any surplus of the consideration transferred and the value of non-controlling interests over the net fair value of the business’ identifiable assets acquired and liabilities assumed, is recognized as goodwill. Costs directly linked to the acquisition are recognized as expenses. IFRS 3 (revised) stipulates a maximum period of twelve months from the acquisition date for the accounting of the acquisition to be finalized: adjustments to values applied must be related to facts and circumstances existing at the acquisition date. Therefore, beyond this 12-month period, any earn-out adjustment must be recognized in income for the fiscal year unless the additional consideration is an equity instrument. As regards the treatment of deferred tax assets, a gain in income for deferred tax assets unrecognized at the acquisition date or during the measurement period must be recognized. Where a business is acquired in stages, the previous investment is remeasured at fair value at the date if and when the control is transferred. Any difference between fair value and net book value of this investment is recognized in income. Any change in the Group’s interest in an entity that results in a loss of control is recognized as a gain/loss on disposal and the remaining interest is remeasured at fair value with the change being recognized in income. Transactions that do not affect control (additional acquisition or disposal) is accounted for as an equity transaction between the Group share and the non-controlling interest share without an impact on profit or loss and/or a goodwill adjustment. 82 KLÉPIERRE 2017 REGISTRATION DOCUMENT